Question 1

The market for corporate control suggests that:

Accepted Answer

A)  management and ownership make a large difference in a firm's results. 
B)  it is rare for mergers to show economic benefits over a sustained period. 
C)  hostile takeovers generate the most in additional value. 
D)  LBOs cost more than they are worth. 
A)  management and ownership make a large difference in a firm's results. 
B)  it is rare for mergers to show economic benefits over a sustained period. 
C)  hostile takeovers generate the most in additional value. 
D)  LBOs cost more than they are worth. A

Question 2

Which of the following might you recommend to a firm with excessive free cash flow?

Accepted Answer

A)  Acquire a firm to diversify. 
B)  Acquire a firm to bootstrap earnings. 
C)  A leveraged buyout. 
D)  A repurchase of shares. 
A)  Acquire a firm to diversify. 
B)  Acquire a firm to bootstrap earnings. 
C)  A leveraged buyout. 
D)  A repurchase of shares. D

Question 3

In general,shareholders of the target firm benefit from takeovers.

Accepted Answer

A) True 
 B)False  True

Question 4

CBA Corp.is worth $15 million as a stand-alone firm.ABC Corp.has offered 350,000 shares valued at $50 each to merge with CBA.After the merger,however,ABC's shares are worth only $45 per share.What was the cost of the merger?

Accepted Answer

A)  -$1.75 million 
B)  $0.75 million 
C)  $1.75 million 
D)  $3.25 million 
A)  -$1.75 million 
B)  $0.75 million 
C)  $1.75 million 
D)  $3.25 million

Question 5

The value of the target firm's bonds goes down when a leveraged buyout is announced.

Accepted Answer

A) True 
 B)False

Question 6

Why is it stated that the safest way of evaluating the potential gains from a merger is to focus on the changes in cash flow that will transpire as a result of the merger?

Accepted Answer

The alternative to this approach is to d

Question 7

Many companies are finding it more efficient to outsource many of their activities than to integrate vertically.

Accepted Answer

A) True 
 B)False

Question 8

Proxy fights are conducted in order to achieve a goal of:

Accepted Answer

A)  changing the corporate charter. 
B)  bringing about economies of scale. 
C)  replacing the current board and management team. 
D)  having a public tender offer. 
A)  changing the corporate charter. 
B)  bringing about economies of scale. 
C)  replacing the current board and management team. 
D)  having a public tender offer.

Question 9

How are the gains from mergers distributed between the shareholders of the acquired and acquiring firms?

Accepted Answer

We observed that when the target firm is

Question 10

Contrary to logic,firms that enjoy complementary resources in the production process are rarely good candidates for merger.

Accepted Answer

A) True 
 B)False

Question 11

Agency cost occurs when managers or directors take actions adverse to shareholders' interest.

Accepted Answer

A) True 
 B)False

Question 12

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

Accepted Answer

A)  economic gains are said to have taken place. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger. 
A)  economic gains are said to have taken place. 
B)  the firms were previously underpriced. 
C)  the merger provides diversification to investors. 
D)  there is no cost involved in the merger.

Question 13

After analyzing the particulars of firms A and B and their proposed merger,comment on the desirability of the merger:
A. The merged firms are expected to be worth $26,000. Be sure to mention EPS of the merged entity, and so on.
From the value of the merged firms, it can be seen that this merger has no expected synergies. Namely, the sum of the premerger values is equal to the postmerger value. After the merger, there will be 1,625 shares of the new stock outstanding, and total earnings should be $4,000, which is precisely the previous sum of earnings. However, now the earnings per share are $2.46, which appears attractive relative to either of the previous EPS amounts. The P/E ratio should be 6.5, which is between the firms' previous P/Es. It may be possible to fool some investors; however, this merger does not appear to have accomplished anything of financial consequence, and represents an example of the bootstrap effect.

Accepted Answer

@#IMG-DLM& Firm A will purchase firm B by offering

Question 14

Which of the following statements is correct concerning the cost of two firms merging? The cost:

Accepted Answer

A)  is fixed when the merger is financed with cash. 
B)  can be affected by postmerger gains if cash is used. 
C)  decreases as the postmerger share price increases when stock is used to finance the merger. 
D)  is not determined until after the merger, regardless of the type of financing. 
A)  is fixed when the merger is financed with cash. 
B)  can be affected by postmerger gains if cash is used. 
C)  decreases as the postmerger share price increases when stock is used to finance the merger. 
D)  is not determined until after the merger, regardless of the type of financing.

Question 15

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

Accepted Answer

A) True 
 B)False

Question 16

The merger between Chase Manhattan and Chemical bank is an example of a:

Accepted Answer

A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  direct merger. 
A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  direct merger.

Question 17

If Microsoft acquires Dell Computer,it will be an example of a:

Accepted Answer

A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  distribution-channel merger. 
A)  vertical merger. 
B)  horizontal merger. 
C)  conglomerate merger. 
D)  distribution-channel merger.

Question 18

The costs for public companies of meeting the requirements of the Sarbanes-Oxley Act and other detailed regulations have helped push corporations to return to private ownership.

Accepted Answer

A) True 
 B)False

Question 19

A public offer to purchase the shares of existing stockholders in order to take the firm over is called a:

Accepted Answer

A)  tender offer. 
B)  carve-out. 
C)  spin-off. 
D)  divestiture. 
A)  tender offer. 
B)  carve-out. 
C)  spin-off. 
D)  divestiture.

Question 20

Discuss how tactics such as shark repellents or poison pills accomplish their intent.

Accepted Answer

A shark repellent is a less serious tact

Exam 21: Mergers, Acquisitions, and Corporate Control

The market for corporate control suggests that:

Which of the following might you recommend to a firm with excessive free cash flow?

In general,shareholders of the target firm benefit from takeovers.

CBA Corp.is worth $15 million as a stand-alone firm.ABC Corp.has offered 350,000 shares valued at $50 each to merge with CBA.After the merger,however,ABC's shares are worth only $45 per share.What was the cost of the merger?

The value of the target firm's bonds goes down when a leveraged buyout is announced.

Why is it stated that the safest way of evaluating the potential gains from a merger is to focus on the changes in cash flow that will transpire as a result of the merger?

Many companies are finding it more efficient to outsource many of their activities than to integrate vertically.

Proxy fights are conducted in order to achieve a goal of:

How are the gains from mergers distributed between the shareholders of the acquired and acquiring firms?

Contrary to logic,firms that enjoy complementary resources in the production process are rarely good candidates for merger.

Agency cost occurs when managers or directors take actions adverse to shareholders' interest.

If two merged firms are shown to have a higher combined market value than the sum of the individual market values,then:

Which of the following statements is correct concerning the cost of two firms merging? The cost:

A tender offer is an agreement between the management and shareholders of a firm to buy back its own shares.

The merger between Chase Manhattan and Chemical bank is an example of a:

If Microsoft acquires Dell Computer,it will be an example of a:

The costs for public companies of meeting the requirements of the Sarbanes-Oxley Act and other detailed regulations have helped push corporations to return to private ownership.

A public offer to purchase the shares of existing stockholders in order to take the firm over is called a:

Discuss how tactics such as shark repellents or poison pills accomplish their intent.

Goals and Governance of the Corporation

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash-Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk,Return,and the Opportunity Cost of Capital

Risk,Return,and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Risk, Return, and Capital Budgeting

International Financial Management

Options

Risk Management

Filters